How Can Better Communication Between Investors and Companies Accelerate Corporate Sustainability?

Stu Dalheim
August 21, 2017
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At the recent NAEM Sustainability Management Conference, I had the opportunity to provide my perspective on behalf of Calvert Research and Management on the growing investor focus on corporate environmental, social and governance (ESG) matters, how investors use ESG information, and what we are looking for.

How many investors consider such information in their investment processes? The United Nations Principles for Responsible Investment, a set of investment principles that help investor members incorporate ESG issues into investment practice, have about 1,750 signatories, collectively representing approximately $70 trillion of assets.

Despite this, environment, health and safety (EHS) managers and sustainability leaders often work behind the scenes and do not hear enough about investor interest in their work. This signals a need for better communications from investors to companies about the importance of material ESG matters, and a need for better communication inside companies between EHS managers and Investor Relations.

Demonstrating Business Value

A constant refrain during the conference was the importance of business value. A Calvert research report, The Financial and Societal Benefits of ESG Integration: Focus on Materiality, is among a growing body of material that describes how corporate performance on ESG, the province of EHS managers and sustainability leaders, can affect revenue, brand, costs and risks.

EHS managers and sustainability directors are managing the programs and creating the data that can help investors understand a company's ability to succeed.

While there is a broad spectrum of investor approaches to ESG, core concepts and approaches can help companies more clearly communicate with investors, with the potential to attract capital and build greater internal and external support for sustainability programs. Some of these core concepts include:
  • Focus sustainability programs and disclosure on the set of issues most relevant to the business.

  • Conduct materiality assessments with internal and external stakeholders to identify these priority issues.

  • Develop a strategy and objectives, with quantitative targets, to manage the prioritized issues, emphasizing the connection to business value, risk management and the long-term strategy of the firm.

  • Communicate publicly how these matters relate to strategy and create business value, and describe the progress that the company is making in both quantitative and qualitative terms.
A recommended resource is the Sustainability Accounting Standards Board (SASB). SASB has developed a set of standards for disclosure, through engagement with financial market participants and issuers, that can help companies focus on the issues and metrics most likely to drive value and facilitate efficient and effective disclosure.

Reaping the benefits

Building a sustainability program and disclosures around a core set of material issues and using standards for disclosure from SASB can help address the current frustration felt on both the investor and corporate-sides of corporate sustainability:

  • Investors want improved corporate disclosure that addresses the specific risks that a business is managing and based on standards that facilitate comparability and reliability

  • Companies are straining under the burden of numerous surveys on ESG matters, many of which feel as if they have no connection to running the business.
Focusing on the core set of issues that matter most to the business and its stakeholders will be appreciated by investors who understand that strong management of material environmental, social and governance matters aligns with improved financial performance. This can simplify reporting, enabling more time to be spent running the business and driving performance in the safety, energy, water and waste metrics that matter so much.

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About the Author

Stu Dalheim
Mr. Dalheim leads Calvert's shareholder advocacy program, which seeks to improve corporate environmental, social and governance performance through direct dialogue, standard-setting exercises and partnerships, and public policy. Mr. Dalheim has focused on corporate governance, transparency and environmental issues and works with policy makers and regulators to advance the interests of sustainable and responsible investors. He serves on the board of Bethesda Green, the UNEP FI Investment Commission Board and is a member of the Corporate Governance Advisory Council of the Council of Institutional Investors. Mr. Dalheim earned a BA in philosophy from Wesleyan University and is a LEED accredited professional.

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